2016 Budget predictions

Practical Law UK Legal Update 3-623-4911 (Approx. 16 pages)

2016 Budget predictions

by Practical Law Tax

Measures on which substantive announcements may be made in the 2016 Budget

Measure	What might be in the 2016 Budget?	Practical Law resources
Business
BEPS: implementation and response to EU proposals	Possibly a further update on UK implementation plans. This could include responses to the recent EU proposals for an anti-avoidance directive and the UK's consultation on changes to the tax deductibility of corporate interest payments.	BEPS tracker Legal update, Introduction of EU corporate tax anti-avoidance package
Business tax roadmap	In July 2015, the government said that it would publish, by April 2016, a roadmap setting out its plans for business taxes over the course of this Parliament. There may be a progress update in the Budget, or perhaps the roadmap itself will be published.	Legal update, July 2015 Budget: key business tax announcements: Business tax roadmap
Corporation tax relief for contributions to grassroots sport	A consultation is expected.	Legal update, 2015 Autumn Statement and Spending Review: key business tax announcements: Corporation tax relief for contributions to grassroots sport
Compliance

Digital tax accounts	Consultations on the details of digital tax accounts for individuals (promised for Spring 2016).	Legal update, Digital tax accounting: HMRC vision to transform tax administration by 2020 Tax legislation tracker: compliance, disputes and investigations: Digital tax accounts
Penalties: reform	The two further consultations promised in September 2015 (penalties for late filing and late payment and penalties for inaccuracies in returns) may be published.	Legal update, New penalties model: HMRC publishes responses to consultation Tax legislation tracker: compliance, disputes and investigations: New model for failure penalties
Tax enquiries closure rules: closure of aspect of enquiry	Alternative models to that proposed in previous consultation. Possibly, draft legislation.	Legal update, Tax enquiries closure rules: HMRC publishes response to consultation Tax legislation tracker: compliance, disputes and investigations: Closure of aspect of tax enquiry
Employment and pensions
Termination payments: simplification of tax rules	Summary of responses to consultation and announcement of proposed approach.	Legal update, Consultation on simplifying tax and NICs on termination payments Tax legislation tracker: employment: Termination payment rules: simplification
Travel and subsistence: reform	Possibly a response to the consultation which closed on 16 December 2015.	Legal update, Travel and subsistence consultation: discussion paper published Tax legislation tracker: employment: Review of employee benefits and expenses
Pensions tax reliefs: reform	The government response to the July 2015 consultation, including possible changes to pensions tax relief.	July 2015 Budget: key pensions announcements: Reform of pensions tax relief
Employment status: OTS review	An update on progress in implementation of the OTS' recommendations, including the cross-government working group.	Legal update, 2015 Autumn Statement and Spending Review: key business tax announcements: Employment status and accommodation benefits: government to act on OTS recommendations Tax legislation tracker: employment: Review of employment status
Income tax and NICs: OTS review of alignment	The OTS published its review on 7 March 2016. It is possible that the government will publish its response with the Budget.	Legal update, OTS tax and NICs alignment review Tax legislation tracker: employment: Alignment of income tax and NICs
Cars, vans and related fuel benefits: incentives for ultra low emission vehicles	Review of the tax incentives for ultra low emission vehicles (promised in March 2015 Budget).	Legal update, March 2015 Budget: key business tax announcements: Cars, vans and related fuel benefits
Employer-provided living accommodation: call for evidence	Possibly a response to the December 2015 call for evidence in relation to employer-provided living accommodation.	Legal update, Draft Finance Bill 2016 legislation: key business tax measures: Employer-provided living accommodation: call for evidence Tax legislation tracker: employment: Review of employee benefits and expenses
Environment
Energy efficiency taxes and reporting: reform	A formal response to the September 2015 consultation is expected. Changes may include a single new tax based on the climate change levy and a single reporting framework.	Legal update, Government consults on reforming energy efficiency taxes and reporting, including CRC and CCL
Finance
Deductibility of interest: wide-ranging changes for companies	Possibly a response to the October 2015 consultation on proposed restrictions on the tax deductibility of interest for corporates.	Legal update, Government consults on changes to tax deductibility of interest for companies Tax legislation tracker: finance: Restrictions on interest deductibility
Peer-to-peer lending: withholding tax treatment	Update about how the government proposes that withholding will apply to interest on peer-to-peer loans, following the interim measure announced in January 2016.	Legal update, No withholding from interest on peer-to-peer loans (interim measure) Tax legislation tracker: finance: Peer-to-peer lending
Financial services
Bank levy: territorial restriction and high quality liquid assets	Possibly a response to the consultation on restricting the operation of the bank levy to UK balance sheet equity and liabilities, and amending the exemption for high quality liquid assets to reflect regulatory changes.	Legal update, Bank levy consultation: territorial restriction and high quality liquid assets Tax legislation tracker: finance: Bank levy: high quality liquid assets Tax legislation tracker: finance: Bank levy: territorial restriction
Offshore evasion
Failure to prevent facilitation of evasion: corporate criminal offence	The government may publish the further consultation document (promised in early 2016) on the draft legislation and draft guidance. (Draft clauses were published in December 2015 but a further consultation on draft legislation and guidance was promised in early 2016).	Legal update, Draft Finance Bill 2016 legislation: key business tax measures: Corporate criminal offence of failure to prevent facilitation of tax evasion Tax legislation tracker: compliance, disputes and investigations: Criminal liability for offshore evasion
Civil sanctions for offshore tax evaders: new asset-based penalty	The draft clauses for the offshore asset-based penalty may be published with the Budget (they were promised for early in 2016).	Legal update, Draft Finance Bill 2016 legislation: key business tax measures: Increased civil sanctions for offshore tax evaders Tax legislation tracker: compliance, disputes and investigations: Strengthening civil sanctions for offshore evasion
Offshore non-compliance: new disclosure facility to run from April 2016 to September 2018	Announcement of a time-limited disclosure facility (expected in early 2016).	Legal update, Draft Finance Bill 2016 legislation: key business tax measures: Increased civil sanctions for offshore tax evaders
Past offshore non-compliance: new requirement to correct	A consultation on a new legislative requirement to correct past non-compliance may be published with the Budget.	Legal update, Draft Finance Bill 2016 legislation: key business tax measures: Requirement to correct past offshore non-compliance Tax legislation tracker: compliance, disputes and investigations: Strengthening civil sanctions for offshore evasion
Owner-managed businesses
NICs: abolition of Class 2 and reform of Class 4	Possibly a response to the consultation on proposals to abolish Class 2 national insurance contributions for the self-employed and make contributory benefits dependent on Class 4 contributions.	Legal update, Consultation: Abolition of Class 2 NICs and changes to Class 4 Tax legislation tracker: owner-managed business: Abolition of Class 2 NICs and reform of Class 4 NICs
NICs: restriction of employment allowance	Possibly a response to the November 2015 consultation and draft legislation to remove entitlement to the NICs employment allowance from companies with a single director/employee. NOTE ADDED ON 13 March 2016: The excluded companies regulations were made on 10 March and are identical to the draft that HMRC published for consultation in November 2015.	Legal update, NICs employment allowance: excluded companies and increase in maximum amount regulations made Tax legislation tracker: employment: Increase in NICs employment allowance and denial for sole employee directors
Entrepreneurs' relief: for academics	Possibly an update on the review announced in March 2015.	Legal update, March 2015 Budget: key business tax announcements: Entrepreneurs' relief for academics Tax legislation tracker: owner-managed business: Entrepreneur's relief for academics
IR35: personal service companies	Update and summary of responses to July 2015 consultation.	Legal update, HMRC consults on possible changes to IR35 Tax legislation tracker: employment: Review of IR35
Small company taxation: OTS review of regime	The OTS published its report on 3 March 2016. It is possible that the government will publish its response to the report with the Budget.	Legal update, OTS small company taxation review Tax legislation tracker: owner-managed business: Review of small company taxation
Partnerships
Partnership taxation: implementation of some OTS recommendations	Possibly further details. The OTS published its final report on 19 January 2015 and the government announced, in the March 2015 Budget, that it intends to take forward over 70% of the recommendations. The only concrete measure so far announced is the update to SP D12 in September 2015.	Legal update, HMRC updates Statement of Practice D12 on partnerships Tax legislation tracker: miscellaneous: Review of partnership taxation
Private equity and venture capital
Limited partnerships used in private fund structures: proposed changes aimed at ensuring that the UK limited partnership remains the market standard structure for European private equity and venture capital funds as well as many other types of private fund	Possibly a response to the July 2015 consultation on a number of proposed amendments to the Limited Partnerships Act 1907. There may also be an update on the possibility of optional legal personality for UK funds.	Legal update, Limited partnerships: consultation on amendments to Limited Partnerships Act 1907 for private equity investments Tax legislation tracker: investment structures: Limited partnerships: optional legal personality
Property
CGT: disposals of UK residential property by non-residents	The government is expected to publish revised draft Finance Bill 2016 legislation setting out two situations in which a non-resident CGT return is not required: no gain/no loss disposal and grant of a lease for no premium.	Legal update, Non-resident CGT: reporting to be made optional in prescribed circumstances Private client tax legislation tracker 2015-16: CGT: UK residential property disposals by non-residents
SDLT: additional 3% charge on acquisitions of second homes and buy-to-let properties	HM Treasury will announce the final arrangements, following the consultation launched in December 2015. It is not clear whether draft legislation will be published on Budget day.	Legal update, SDLT consultation on higher rates for additional residential properties Tax legislation tracker: property, energy and environment: Increased SDLT for second homes and buy-to-let properties
VAT
VAT: grouping rules	Possibly an update on when we can expect the formal consultation (expected in the Spring) about the reform of the VAT group rules following recent ECJ decisions.	Legal update, HMRC to consult on VAT grouping rules following Larentia + Minerva and Skandia
VAT: registration and deregistration thresholds	Details of the thresholds from 1 April 2016.
VAT: airport shops	The government may announce the outcome of the review of VAT relief in airports and other airside shopping taxes launched on 31 December 2015.	HM Treasury: Help for airside shoppers to receive more VAT savings
VAT data: sharing non-financial data	Possibly a consultation.	Legal update, 2014 Budget: key business tax announcements: Data sharing: non-financial VAT registration data Tax legislation tracker: compliance, disputes and investigations: Sharing taxpayer data
Miscellaneous
ESC D33 (taxation of damages): enactment	Possibly an update on plans to legislate this concession, given the response document published on 5 November 2015.	Legal update, Enacting ESC D33 response document published Tax legislation tracker: miscellaneous: Enactment of elements of ESC D33
Repealing obsolete legislation	Possibly comments on the draft legislation published in June 2015.	Legal update, Repealing obsolete statute law: consultation Tax legislation tracker: miscellaneous: Repealing obsolete legislation

Key measures that may be confirmed at Budget but few substantive changes are expected

We expect the government to confirm the contents of the Finance Bill 2016 in the Budget and to publish responses to the consultations on the draft Finance Bill 2016 legislation which closed recently. There may also be some technical changes to that legislation, although policy changes are unlikely at this stage.

Key measures are:

The revised income tax treatment of dividends.
The expansion of the transactions in securities rules and the new TAAR for voluntary liquidations.
The new apprenticeship levy.
The interaction of the corporate debt and derivatives rules with new accounting standards.
New rules on hybrid mismatches and changes to the patent box, both triggered by BEPS.
Changes to the tax treatment of fund managers' performance-related returns.
Large businesses to publish their annual tax strategy and risk special measures for persistent avoidance.
A package of changes to tackle offshore tax evasion.

For details of all the business tax measures which we expect to be in the Finance Bill 2016, see Practice note, Finance Bill 2016: business tax provisions analysis.

There may also be an update on some or all of the following consultations on draft regulations.

Topic	What we can expect in the 2016 Budget
Automatic exchange of information Legal update, Automatic exchange of information: draft client notification regulations and guidance Tax legislation tracker: compliance, disputes and investigations: Intermediaries' duty to provide information about Common Reporting Standard	Possibly a response to the consultation on the draft regulations published on 1 February 2016.
CIS compliance test relaxation Legal update, Draft regulations relaxing CIS compliance test Tax legislation tracker: property, energy and environment: Construction industry scheme: reducing administrative burden	Possibly a response to the consultation on the draft regulations published on 9 December 2015.
ESC 3.20: insolvency VAT clawback concession Legal update, Draft legislation to enact insolvency VAT clawback concession published	Possibly a response to the consultation on the draft legislation published on 4 November 2015.
Extension of cluster area and basin-wide investment allowances Legal update, Draft regulations extending oil and gas cluster area and basin-wide investment allowances Tax legislation tracker: property, energy and environment: Extension of cluster area and basin-wide investment allowances	Possibly a response to the consultation on the draft regulations published on 16 December 2015.
Very large companies instalments payments Legal update, Very large companies instalment payments draft regulations Tax legislation tracker: compliance, disputes and investigations: Corporation tax payment dates	Possibly a response to the consultation on the draft regulations published on 2 December 2015.

Press reports and lobbying

NOTE ADDED ON 16 MARCH 2016: We have updated this section to reflect reports published since this piece was originally published.

The media has reported the following possibilities for the Budget:

An update on the planned reform of the UK's rules for tax deductibility of interest paid by corporates. The rules are likely to become more restrictive, in line with the OECD's BEPS recommendations, and further detailed consultation is expected.
Plans for broad reforms to the pensions tax relief regime appear to have been shelved. Earlier in the year, it had been rumoured that he would announce plans to scrap the higher-rate tax relief available on pensions contributions and replace it with a flat rate, when announcing the outcome of the consultation launched in July 2015. (See Legal updates, Tax news round-up to 26 January 2016: Flat rate tax relief for pensions contributions rumoured and Tax news round-up to 8 March 2016: No plans to reform pensions tax relief in 2016 Budget.)
The higher rate income tax threshold and the personal allowance may increase more than previously expected. The Chancellor is also said to Be keen to abolish the 45% rate of income tax. (See George Osborne plans modest tax help in "risk-free" Budget, independent.co.uk, 6 March 2016 and independent.co.uk, George Osborne "privately tempted" to cut top rate of tax again, report says, 8 March 2016.)
The main rate of insurance premium tax may increase again (having gone up from 6% to 9.5% in November 2015). The ABI warned against another rise, saying it could "hit millions of people doing the right thing". (See Another rise in Insurance Premium Tax would ‘hit millions of people doing the right thing’ says ABI, abi.org.uk, 16 February 2016.)
There may be further measures to tackle the use of personal service companies to save income tax/NICs, action to end the tax advantages of salary sacrifice schemes and a rise in fuel duties (See Budget 2016: George Osborne's political balancing act, BBC News, 14 March 2016 and Budget 2016: Does pension tax relief U-turn pave the way for salary sacrifice reform?, moneymarketing.co.uk, 15 March 2016.)
Possible VAT changes include the removal of VAT low value consignment relief and a larger role for ecommerce platforms in policing VAT compliance by sellers.

The professional and representative bodies have also published their wishlists for the Budget:

The BPF has requested that the government retain the UK's competitive tax treatment of interest expense, simplify the community infrastructure levy, provide continuing support for institutional investment in residential property, provide further ideas to boost the UK's competitive corporate tax regime and extend the SDLT seeding relief to new REITSs. (See BPF Budget 2016 submission January 2016, bpf.org.uk, 29 January 2016.)
The ICAEW supports HMRC's digital transformation, but is concerned about compulsory quarterly digital tax reporting and would like to see a digital tax system that reduces the regulatory burden on business. (See Budget: 4 things the Chancellor should do for Business, ICAEW, 15 February 2016).)
The QCA would like to see the conditions for CGT entrepreneurs' relief and CSOPs relaxed, the reinstatement of the dividend tax credit, a deduction for the costs of raising equity and simplification of the tax rules for small and medium-sized companies, particularly relating to cross-border activity. (See Quoted Companies Alliance Budget Representations 2016.)
The CBI would like to see reform of business rates, a new capital allowance for investment in structures and related buildings, internationally competitive interest deduction and employment tax regimes including retention of upfront tax relief on pensions, simplification of energy efficiency taxes and clarity on the long-range direction of other business taxes. (See Full Budget Submission, CBI, 29 January 2016.)
The CIOT has expressed concern about the impact of the apprenticeship levy on smaller businesses and the ICAEW would like it to be simplified. (See CIOT: Tax body fears that Apprenticeship Levy will disadvantage smaller businesses and ICAEW: The apprenticeship levy needs to be simple, 8 March 2016.)
The North Sea oil industry has called for urgent tax measures to support the struggling industry. (See North Sea oil industry calls for rescue package of tax breaks in budget, theguardian.com, 8 March 2016.)

Practical Law Tax Budget coverage

For details of our planned Budget coverage, including overnight summary, see Legal update, 2016 Budget: Practical Law Tax coverage.

For all our Budget and Finance Bill coverage, see Practice note, Budgets, Autumn Statements and Finance Bills: tax.

Published on 09-Mar-2016

Resource Type Legal update: archive

Jurisdiction

United Kingdom